Archive for the ‘The 1% and the 99%’ Category

There are two ways of looking at the $400,000 speaking fee that ex-President Barack Obama will receive from the Wall Street brokerage firm of Cantor Fitzgerald for speaking at a health care investment conference.

The other is that Obama is merely doing what all but one of the ex-Presidents from Gerald Ford onward have done, which is to use speaking fees cash in on his celebrity status.

Hillary and Bill Clinton’s speaking fees were a special case because Hillary Clinton was a future Presidential candidate. Hillary’s $675,000 in Goldman Sachs speaking fees could be interpreted as payments not only for services rendered, but for services anticipated. That suspicion was reinforced by Clinton’s refusal to release the texts of her talks.

I imagine that Barack Obama will have sense enough to watch his words enough to be able to release the text of his Cantor Fitzgerald talk without embarrassment.

Obama is not doing anything unusual. All but one of the Presidents from Gerald Ford through George W. Bush cashed in with big speaking fees after they left office.

This is the new normal. In this neoliberal age, an ex-President such as Harry Truman or Jimmy Carter who refused to monetize the office of the Presidency would seem quaint and strange.

American Airlines agreed this week to do something nice for its employees and arguably foresighted for its business by giving flight attendants and pilots a preemptive raise, in order to close a gap that had opened up between their compensation and the compensation paid by rival airlines Delta and United.

Wall Street freaked out, sending American shares plummeting. After all, this is capitalism and the capital owners are supposed to reap the rewards of business success.

“This is frustrating. Labor is being paid first again,” wrote Citi analyst Kevin Crissey in a widely circulated note. “Shareholders get leftovers.”

Indeed, major financial players were so outraged by American’s decision to pay higher wages that they punished airline stocks across the board. American itself took it hardest on the chin, of course, but the consensus among stock analysts was that higher pay at American could signal higher pay at other airlines too, with negative consequences for the overall industry.

In the opening of Kim Stanley Robinson’s new SF novel, New York 2140, two unemployed financial software engineers known as Mutt and Jeff—unemployed because they refuse to design a possibly illegal program for high-speed trading—contemplate a flooded lower Manhattan from atop the former Metropolitan Life building.

One of them says he has figured out what’s wrong with capitalism.

The basic problem with capitalism, he says, is that the forces of the market forces producers to sell products below cost.

This enables an individual enterprise to survive (sometimes), but, in the long run, leads human society into bankruptcy.

In the novel, global warming has taken place, sea levels have risen and lower Manhattan is under water. Skyscrapers such as the Met Life building are still survive amid a kind of new Venice. Uptown Manhattan is 50 feet higher in elevation, and is dry. In the middle is a tidal zone, where the poor and homeless congregate.

Some environmental problems have been solved, or at least are being coped with. Gasoline, jet fuel and other fossil fuels no longer exist. Air travel is by dirigible, ocean travel is by sailing ship and land vehicles are electric. But the financial structure and distribution of income are more or less like they are now.

New skyscrapers—”superscrapers”—in uptown are owned by the world’s wealthy elite, as investments or as one of multiple homes, and are often vacant.

A hurricane late in the novel leaves many homeless. They try to storm the vacant uptown towers, and are turned back by private security forces, who outgun the New York Police Department.

Rather than attempt a violent revolutionary overthrow, the common people attempt a political and economic jujitsu.

They join in a nationwide debt strike. On a given day, they stop paying their mortgages, student loans and credit card balances. The financial system is go highly leveraged with debt upon debt that it comes crashing down, just as in 2008. So the financiers go to Washington for another bailout, just as they did then.

But this time, the President and Federal Reserve Chairman, who are in on the plan, act differently. They tell the banks and investment companies that they would be bailed out only on one condition—that the government be given stock of equal value to the bailout, as was done in the bailout of General Motors. Those who refuse this deal are allowed to fail.

Now the federal government has the authority to force the banks to act as public utilities. And the huge profits that once flowed to the financial elite now flow to Washington, which makes it possible to adequately fund public education, infrastructure improvement, scientific research and all the other things the country needs.

And so the American people live happily—not ever after and not completely, but for a while.

What follows is notes for the first part of a talk for the Rochester Russell Forum scheduled at Writers & Books Literary Center, 740 University Ave., Rochester, NY, at 7 p.m. Thursday, April 13.

Neoliberalism is the philosophy that economic freedom is the primary freedom, economic growth is the primary goal of society and the for-profit corporation is the ideal form of organization.

It is the justification for privatization, deregulation and the economic austerity currently being imposed on governments by lenders.

Neoliberalism has its roots in classical liberalism, which arose in the 18th and 19th centuries. Classic liberals said that the purpose of government is to protect human rights, including religious, intellectual, political and economic freedom. They fought the absolute power of kings and the privileges of aristocrats and demanded the right of individuals to determine their own fates.

Classical liberalism came to be supplanted in the early 20th century by a belief that government regulation and welfare could, if well thought out, enhance human freedom by giving individuals more choices. A graduate of a public school or university, for example, has more options than a person unable to afford an education, so taxing the public to pay for public schools and universities would be a form of liberation.

Neoliberalism is a backlash against social liberalism. Neoliberalism affirms that freedom of enterprise is the only important freedom. Its well-known adherents include Friedrich Hayek, Ludwig von Mises and Milton Friedman.

It came into widespread acceptance in the 1980s, as a reaction against the manifest failures of central economic planning and as a way to break the political gridlock of the welfare state. Ronald Reagan and Margaret Thatcher were both strongly influenced by the neoliberals.

Neoliberalism’s strongest adherents are to be found among economists, journalists, financiers, Silicon Valley executives and right-of-center parties in the English-speaking world and western Europe, and in international institutions such as the International Monetary Fund, World Bank and European Central Bank, which enforce neoliberal policies on debtor countries.

It is more of an implicit philosophy than a credo, a series of assumptions that has come to permeate our society.

What follows is my attempt to understand the logic behind these assumptions.

Andrew Keen’s book, The Internet Is Not The Answer (2015), which I recently finished reading, is a good antidote to cyber-utopians such as Kevin Kelly.

Keen says the Internet is shaping society in ways we the people don’t understand. Some of them are good, some of them are bad, but all are out of control.

Like Kelly, he writes about technology as if it were an autonomous force, shaped by its own internal dynamic rather than by human decisions. Unlike Kelly, he thinks this is a bad thing, not a good thing.

He does not, of course, deny that the Internet has made life easier in many ways, especially for writers. But that is not the whole story. He claims that—

What he doesn’t quite understand is that the “we” who shape the tools is not the same as the “us” who are shaped by them.

Or to use Marxist lingo, what matters is who owns the means of production.

Technology serves the needs and desires of those who own it. Technological advances generally serve the needs and desires of those who fund it.

Advances in technology that benefit the elite often serve the general good as well, but there is no economic or social law that guarantees this. This is as true of the Internet as it is of everything else.

Steve Bannon, the chief adviser to President Donald Trump, is probably the most influential person in the Trump administration besides Trump himself.

But I find it hard to get a handle on Bannon’s thinking, since he shuns the limelight, and hasn’t written any books or magazine articles I could get hold of,

His 2010 documentary film, Generation Zero, is probably as good a guide to his thinking as anything else.

It is well done and, despite being 90 minutes long, held my interest—at least until the last 10 minutes of so, which consists of restatements of the main points.

Generation Zero is an analysis of the roots and consequences of the 2008 financial crisis, which Bannon rightly blames on crony capitalism, the unholy alliance of Wall Street and Washington that began in the 1990s.

But if you look at the film’s action items, what he really does—knowingly or unknowingly—is to protect Wall Street by diverting the public’s attention from what’s really needed, which is criminal prosecution of financial fraud and the break-up of “too big to fail” institutions.

Bannon presents himself as an enemy of corrupt politicians and financiers. But there is nothing he advocates in the film or otherwise that threatens the power of either.

∞∞∞

Generation Zero draws on a book, The Fourth Turning by William Strauss and Neil Howe, who claim there is a cycle in American politics based on the succession of generations. Each cycle consists of four turnings—(1) a heroic response to a crisis, (2) a new cultural or religious awakening, (3) an unraveling and (4) a crisis.

Now Trump has put two former Goldman Sachs executives in charge of economic policy—Steve Mnuchin, former Goldman partner, as Secretary of the Treasury, and Gary Cohn, former president of Goldman, as his top economic adviser.

President Trump has put a portrait of Andrew Jackson, the great enemy of concentrated financial power, in his office. But his appointments show that he will be a champion of the moneyed establishment. Those who voted for him in hope he would be a friend to working people are going to be disappointed.

Some American hedge fund managers and Silicon Valley billionaires are preparing refuges so they have places to flee in the event of a revolution or economic collapse.

Evan Osnos, writing in the New Yorker, said they call this “apocalypse insurance.”

Reid Hoffman, the co-founder of LinkedIn and a prominent investor, recalls telling a friend that he was thinking of visiting New Zealand. “Oh, are you going to get apocalypse insurance?” the friend asked. “I’m, like, Huh?” Hoffman told me.

New Zealand, he discovered, is a favored refuge in the event of a cataclysm. Hoffman said, “Saying you’re ‘buying a house in New Zealand’ is kind of a wink, wink, say no more. Once you’ve done the Masonic handshake, they’ll be, like, ‘Oh, you know, I have a broker who sells old ICBM silos, and they’re nuclear-hardened, and they kind of look like they would be interesting to live in.’ ”

I asked Hoffman to estimate what share of fellow Silicon Valley billionaires have acquired some level of “apocalypse insurance,” in the form of a hideaway in the U.S. or abroad. “I would guess fifty-plus percent,” he said, “but that’s parallel with the decision to buy a vacation home. Human motivation is complex, and I think people can say, ‘I now have a safety blanket for this thing that scares me.’ ”

The fears vary, but many worry that, as artificial intelligence takes away a growing share of jobs, there will be a backlash against Silicon Valley, America’s second-highest concentration of wealth. (Southwestern Connecticut is first.)

“I’ve heard this theme from a bunch of people,” Hoffman said. “Is the country going to turn against the wealthy? Is it going to turn against technological innovation? Is it going to turn into civil disorder?”

Radicals propose a universal guaranteed income for all, regardless of whether you are gainfully employed or not. But as Matt Breunig pointed out, it already exists in the top 1 percent and 0.1 percent income bracket. They receive income from their financial assets regardless of whether they work or not.

There is a strong argument for a guaranteed. It is that the reason that the national wealth today is greater than in the past is largely due to the inventiveness and effort of our ancestors, not to anyone living today, and that therefore all of us are equally entitled to the fruits of their effort.

Grant that extreme economic inequality is a bad thing. Grant that ever-increasing economic inequality is a bad thing.

Grant that complete equality of incomes is not feasible and maybe not desirable. How much equality is enough?

The economist Friedrich Hayek wrote in The Road to Serfdom (as I recall) that it is impossible that people could reach a consensus on what each and every person deserves. Once you reject complete equality, he wrote, the only acceptable distribution of income is what results from the impersonal working of the free market.

A democratic government could never determine a distribution of income that is satisfactory to everyone, or even a majority, Hayek thought; if it tries, the result can only be gridlock and a breakdown of democracy.

But there are ways to reduce inequality that neither set limits on any individual’s aspirations nor give some group of bureaucrats the power to decide who gets what. Some that come to mind immediately are:

This chart from Vox shows how each $100 in Americans’ income was divided among the five main income groups in 2014, and how their shares have changed since 1989

It’s a bad thing when the rich get richer and the poor get poorer.

But suppose the rich got richer, but the poor didn’t get poorer. What would be wrong with that?

Is the problem with economic inequality in and of itself? Or would extreme differences between rich and poor be bad even if they poor did have enough—whatever your definition of “enough” happens to be.

New Dealers in the 1930s thought that increased incomes for the poor would be good for everybody, including the rich. If poor people had more money to spend, that would increase demand for goods and services, and get the economic going.

The U.S. Census Bureau reports that the four wealthiest counties in the USA—Loudon County, Falls Church City and Fairfax County, Virginia, and Howard County, Maryland—are all suburbs of Washington, D.C.

Nine of the 20 wealthiest counties—which also include Arlington County, Fairfax City and Prince William County, Virginia, and Calvert County and Montgomery County, Maryland—also are D.C. suburbs.

Only four of America’s wealthiest counties—Hunterdon County, Somerset County and Morris County, New Jersey and Nassau County, New York—are suburbs of New York City, the nation’s financial center and only three, Santa Clara County, San Mateo County and Marin County, California, are in or near Silicon Valley, the nation’s technology center. Make of that what you will.

The defeat of the odious Trans-Pacific Partnership agreement shows that the people can win against entrenched corporate and political power. The way the TPP was defeated shows how the people can win against entrenched power.

A couple of years ago, the passage of the odious Trans-Pacific Partnership agreement seemed inevitable.

Barack Obama, Hillary Clinton and Republican leaders in Congress, the U.S. Chamber of Commerce and most big newspapers and broadcasters were in favor of it. The public knew little about it because it was literally classified as secret. Congress passed fast-track authority, so that it could be pushed through without time for discussion.

It is in theory a free-trade agreement among the United States, Canada, Mexico, Australia, Japan and seven other countries. It is actually a corporate wish list in the form of international law, giving corporations new privileges in the form of patent and copyright protection and new powers to challenge environmental, health and labor laws and regulations.

I think there is a strong possibility that Donald Trump will be a one-term President—provided there are still free and fair elections in 2020.

I think that for the same reasons I thought Hillary Clinton might be a one-term President. I believe there will be another recession, as serious as the last, during the next four years, and I think Trump will be even less able to cope with it than Clinton.

He campaigned as a populist champion of the common people against the elite. But he spent his life among the elite, and his business history shows that he is only tough with those with less wealth and power than he has.

Trump kicks downward. He doesn’t punch upward.

His transition team is drawn from K street lobbyists. His preference is to appoint from the private sector, not from government or academia.

His likely choice for Secretary of the Treasury is Steven Mnuchin, his campaign finance chairman. Mnuchin is CEO of an investment firm called Dune Capital Management, but, according to POLITICO, he worked 17 years for Goldman Sachs, whose subprime mortgage manipulations were a big contributor to the last recession.

The problem is that, in a recession, what makes sense for a business owner doesn’t make sense for a President. A business owner’s instinct in tough times is to cut back. That is rational behavior for the individual, but cutting back means less money in circulation, less economic activity and a worse recession.

I don’t personally know many Donald Trump supporters. But I can understand why somebody might be so fed up with what’s happened during the past eight years or sixteen years or twenty-four years that they might turn to somebody such as Donald Trump.

People will overlook many faults in a leader if they think the leader is on their side. I think that’s why Trump’s offensive and foolish statements, which would have sunk any ordinary candidate, are overlooked.

Many people think—wrongly—that they have nothing to lose and might as well take a chance on Trump.

Unfortunately, Trump is not really on the side of working people, as is shown by his record in business, by the people on his political and economic team and by his economic policies (provided you read the fine print).

His economic advisers are mostly Wall Street investors and hedge fund managers—the type of people he’s denounced on the campaign trail.

And although his actual proposals contain a few things I agree with, it is basically the same old 30-year-old Republican formula—cut taxes (especially on the rich), cut government spending (except on the military) and eliminate regulations to protect workers, public health and the environment.

In a way, the enormous amounts of money that are spent in U.S. elections reflects the democratic nature of American institutions.

If the political process were controlled by a few party leaders, as during the Gilded Age of the late 19th century and other times in the past, it wouldn’t cost so much to control the process.

Many reforms were enacted in the 20th century to limit corporate power and make the government more democratic. The Tillman Act of 1907 forbid corporations to contribute to political candidates or elections. The Constitution was amended in 1913 so that Senators would be elected by the public instead of chosen by state legislators.

Over time limits were placed on campaign spending, and the Democratic and Republican parties began to nominate their candidates through primary elections rather than party conventions.

These reforms made possible the legislation of the Progressive era and the New Deal, which subjected corporations to unprecedentedly strict regulation and rich people to taxation at top rates reaching 90 percent, while providing Social Security, unemployment insurance and extensive public works.

Business leaders made a concerted and successful effort to turn things around. They altered the climate of opinion, both among educated people and the public. They supported candidates committed not only to the interests of particular businesses, but support of unrestricted capitalism in general.

And they worked through the courts, just as liberals had, to change the limits of what was legally permissible.

What follows is a (very incomplete) list of milestones in their progress, with an emphasis on the legal milestones.

We Americans take it for granted that we are a democracy. Some of us think we have a right and responsibility to spread out democracy to other countries.

Yet a couple of social scientists have determined that the United States is governed as if it were an oligarchy.

Martin Gilens of Princeton and Benjamin Page of Northwestern looked at 1,779 issues on which Americans were polled from 1981 through 2002, and then how Congress acted on these issues.

They found that Congress followed the wishes of the top 10 percent of income earners most of the time, and the bottom 90 percent hardly ever.

That is the classic profile of government by oligarchy—government by a small group, usually of rich people.

The survey found that Americans who band together in interest groups, such as the American Association of Retired People or National Rifle Association, have more influence than numerous, but separate, individuals, but business groups have more influence than other groups.

How can this be? A rich person’s vote does not count any more than anybody else’s vote.

But rich people, especially corporate executives, have means of influencing policy that the rest of us lack. They are:
▪ Campaign contributions to influence elections.
▪ Second-career jobs for politicians and government employees
▪ Propaganda to influence opinion, both among the public and the elite.

There are two kinds of revolving doors between business and government. The first is when people come from the world of business, usually temporarily, to make policy in government.

I don’t think this is necessarily wrong. If you are making policy on a complicated field, such as finance, you want people who know something about the subject, and often as not that will that will be people who earn a living in that field.

Joseph P. Kennedy Sr. was a stock market speculator in the 1920s, trading on inside information and manipulating the market. But when he became the first chairman of the U.S. Securities and Exchange Commission (1932-1935), he outlawed this practices. His experience made him a better regulator.

The second is when government regulators and policy-makers plan to move on to jobs in the industries they regulate and make policy for.

Neil Barofsky, who was special inspector general in charge of the oversight of the Troubled Asset Relief Program (TARP) from 2008 through 2011, wrote about how he was warned that he would make himself unemployable by being too zealous about doing his job, but that he might have a good post-government career if he toned town his reports.

He said he always realizing that doing his job was incompatible with a future job in finance or a higher federal appointment. He is now a law school professor. He is an exception.

Last week Clinton’s supporters seized on new economic data showing that median household income rose by more than 5 percent in real terms last year. Poverty is down. So is the number of Americans without health insurance. So is unemployment. Yes, Hillary Clinton has had a few bad weeks. But don’t worry.

All this seems like grist to the mill of a campaign that essentially promises continuity. Yet there is a problem. Take another look at those figures for inflation-adjusted median household income. Yes, it was $56,500 last year, up from $53,700 the year before. But back in 1999 it was $57,909. In other words, it’s been a round trip — and a very bumpy one indeed — since Clinton’s husband was in the White House.

Telling Americans that they are nearly back to where they were 17 years ago and then expecting them to be grateful looks like a losing strategy. When two thirds of Americans — and even higher percentage of older white voters — say the country is on the wrong track, they are not (as Democrats claim) in denial about the Obama administration’s achievements.

They are saying that the country is on a circular track, and has been since this century began.

Back in 2006, Donald Trump said he was sort of looking forward to the coming housing crash, because he could cash in—presumably by buying up distressed properties.

However, Trump didn’t do anything to cause the housing crash. In contrast, Hillary Clinton’s benefactor and social friend, Lloyd Blankfein of Goldman Sachs, not only benefited from it, but helped to bring it about.

His firm bought up subprime mortgages. That meant lenders could make “liar’s loans” they knew would never be paid back, and eliminate their risk by selling them to Goldman Sachs.

Goldman Sachs converted the mortgages into securities, like stocks or bonds, and sold them on the open market. They got rating agencies to label the securities as high quality investments, even though Goldman Sachs management knew they weren’t.

They made other investments based on the assumption that the market would crash and the securities would become worthless.

All this happened when Lloyd Blankfein was CEO of Goldman Sachs. He became CEO in 2006 and before that was chief operating officer.

Goldman Sachs has given Hillary Clinton $675,000 for making three speeches, and husband Bill Clinton $1.55 million in speech fees.

The firm’s employees as a group are among the top five contributors to Hillary Clinton’s campaigns.

Goldman Sachs also hosted the Clinton Global Initiative; the video above shows a picture of Hillary Clinton and Lloyd Blankfein at a CGI meeting.

How likely is it that a Clinton administration would prosecute Goldman Sachs officials for financial fraud? How likely is it that a Clinton administration would bring financial malpractice under control? The likelihood is next to zero, in my opinion.

These two charts, courtesy of Prof. David F. Ruccio, show the changing distribution of wealth and income in the USA. Please keep in mind that while the chart below refers to the top 1 percent of income earners, the chart above refers to the top 1/100th of 1 percent of wealth holders.

A blogger named Fred Reed sees parallels between the United States today and France on the eve of the French Revolution.

I know three young women of exceptional intelligence and talent, all of them mature and disciplined. They cannot find jobs. It is not from lack of trying, far from it. One of them is married to a hard-working man in a highly technical field usually associated with wealth. He is paid a low hourly wage and forced to work on contract, meaning that he has neither benefits nor retirement. His employers know that if he leaves, they can easily find another to take his place. They have him where they want him.

[snip] In numbers that a half century ago would have seemed impossible, the American young live with their parents, being unable to find jobs to support themselves. Waitressing in a good bar pays better in tips than a woman with a college degree can otherwise earn, assuming that she can earn anything at all. Employers having learned to hire them as individual contractors, they move into their thirties with no hope of a pension for their old age.

Desperation and hatred are close cousins.

Meanwhile, Jeffrey Bezos of Amazon makes spaceships and buys the Washington Post as a toy and the newspapers have reported that a Croesus of Wall Street has bought a Modigliani, it may have been, for $55 million dollars.

[snip]. The homeless in San Francisco are now described as “a plague.” There seem to be ever more of them. But not to worry. Never worry. The stock market remains exuberant. In nearby Silicon Valley, a man buys a new Lamborghini every year.